Libya's oil industry remains vulnerable to protests

TRIPOLI, July 9 Libya's oil industry hopes life
will return to normal now that a wave of protests has ebbed, but
it will take months to ramp up production and more unrest is in
prospect as political chaos spreads in the North African
country.

A group of eastern rebels agreed last week to clear two
major ports they had seized almost a year ago in a drive for
regional autonomy.

Together with the freeing of the southern El Sharara
oilfield, where a separate group has ended a blockade of its
own, the ports' reopening could boost oil exports by 650,000
barrels a day in the next few weeks - helping to restore much of
the 1.4 million bpd Libya used to pump before protests paralysed
the sector.

The rebels agreed to end their blockades after Libyans voted
for a new parliamentary assembly last month in which candidates
campaigning for a federal state that would share oil wealth
between all regions scored well in the neglected east, according
to preliminary results.

But more protests can erupt at any time as the government is
unable to control the militias who helped oust Muammar Gaddafi
in 2011 and who can seize oil facilities at will in pursuit of
political leverage and petroleum revenues.

The deal to reopen the eastern ports means the rebels will
now be paid state salaries, which could tempt other militias to
seize oil infrastructure in pursuit of similar rewards.

"Energy assets will remain a key bargaining chip for groups
wishing to put pressure on national-level politicians," said
Geoffrey Howard, analyst at London-based Control Risks, who is
just back from a trip to Libya.

"Shutdowns are likely to continue over at least the coming
year, making a return to full export levels highly unlikely."

A potential blackmail opportunity is a 70 percent-salary
increase for oil workers which the government approved last
autumn in a failed attempt to discourage protests, said Husni
Bey, head of one of Libya's largest private conglomerates.

The central bank has warned against implementing the hike
because it would ruin public finances already severely under
strain after a year of oil protests.

SALARY INCREASES

But in an indication that the government might bow to
pressure, the cabinet of Prime Minister Abdullah al-Thinni said
it had "reservations" about freezing salary increases for the
country's judiciary.

At the same time the government said it might have to sell
Islamic bonds to fund the $47 billion budget, an unusual step
for an oil-producing country which used to be flush with cash.

A major problem is that oil output will rise only gradually,
forcing the central bank to burn more foreign reserves, which
have fallen to $109 billion from around $130 billion a year ago.

Libya can quickly sell 7.5 million barrels of oil stored at
the reopened Ras Lanuf and Es Sider ports, but it might take
time to restart connecting oilfields and pipelines which have
been idle for longer than during the eight-month uprising
against Gaddafi in 2011.

El Sharara lost at least 20 pumps due to repeated shutdowns,
requiring several months of repairs to restore full capacity of
340,000 bpd, the state-run National Oil Corp has said.

While oil engineers scramble to restore output, Tripoli is
facing the dilemma that it cannot cut the budget because up to
70 percent is spent on the public sector, subsidies on petrol
and bread, and on militias in an attempt to keep popular
frustrations in check.

Libya's new rulers with their under-equipped army and police
have not dared to touch a system from the Gaddafi era under
which people are put on the state payroll or given other
generous allowances as a way to buy their acquiescence.

The state lost $40 billion in oil revenues due to the
protests, Central Bank governor Saddek Omar Elkaber said last
week.

Bey said that even with oil exports rising to one million
barrels per day by the end of September the budget deficit would
still be 50 percent.

The oil protests ended after authorities brought forward
elections to June 25 to get rid of the old General National
Congress, an assembly which many associate with the political
infighting that has plagued Libya since Gaddafi's overthrow.

Results are not due until next week but partial counts show
a strong showing of federalist candidates in the east loyal to
the agenda of port rebel leader Ibrahim Jathran.

But questions remain over what kind of political system
Libya will eventually adopt as a special body tasked with
drafting a new national constitution has still not finished its
work.
(Additional reporting by Feras Bosalum; Editing by Giles
Elgood)

Next In Energy

OSLO, Dec 9 Colombia's peace deal with Marxist
rebels will help the country battle the cocaine trade, President
Juan Manuel Santos said on the eve of collecting a Nobel Peace
Prize that he called a "gift from heaven".

WASHINGTON, Dec 9 U.S. President-elect Donald
Trump is expected to pick U.S. Representative Cathy McMorris
Rodgers, a strong advocate of increased oil and gas development
who is skeptical about climate change, to run the Department of
the Interior, a person familiar with the matter told Reuters on
Friday.

Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Learn more about Thomson Reuters products: